August 18, 2021 15:13:59

AUD is arguably the premier risk currency and remains offered this week for a host of reasons. Worsening sentiment in China and Asia has contributed to a re-rating in the global growth outlook. A national lockdown, in a seemingly never-ending cycle of extensions (in contrast to its Antipodean neighbour’s “hard and fast” strategy) is also hurting economic activity and the RBA’s pretence at becoming more hawkish. The recent central bank minutes alluded to this. Iron ore prices have dropped sharply again today and are trading below their 200-day SMA for the first time in more than a year on China steel output cuts by BHP.

AUD/USD has broken down through previous cycle support at 0.7289. This has pushed the aussie to the bottom of the major currencies this week, just above the kiwi. We get jobs data out overnight but a drop in unemployment in July may not be enough for AUD with the Covid situation worsening this month.

AUD/JPY sat on support

This pair is often viewed as the best risk barometer for FX and a key metric to gauge broader market sentiment, even if we have seen a decoupling with US equity markets since mid-June. After tracking sideways above 84 during early summer, prices turned south and below the 200-day SMA in mid-July. Support was found around 80 where prices held up at the start of the year. But this week’s sour risk sentiment has seen the pair move sharply lower through the July low at 79.83. We are now touching the lower Keltner band and a couple of long-term Fib levels reside around 79.50. One is the 50% mark of the October low to May high at 79.47.

We should expect a bounce from here if we are looking at how the price action has evolved in the last three months. But bulls will need to push back above the 200-day SMA at 81.77 to slow the downward momentum. Any retrace below near-term resistance at 80.15 may be an opportunity to get short with downside targets at 78.46 and 77.95.

AUD/CAD bear channel continues

The battle of the commodity currencies is being won hands down by the more hawkish central bank (BoC) with oil holding up way better than iron ore too. We wrote about the prospect of more downside at the start of the month as the pair was in bearish consolidation mode and holding below previous support at last year’s October lows at 0.9247/9.

Prices are now breaking below near-term cycle lows at 0.9143 so the daily and weekly close will be significant, potentially opening up more downside. Sellers will aim towards the lower end of the bear channel in the 0.90 zone with the 50% retrace level of the March 2020 low to February 2021 high at 0.9029. Near-term resistance is at 0.9237.